Bank of America Warns of AI Credit-Equity Disconnect
Bank of America strategists warn that bond markets are signaling higher risk for AI hyperscalers while stock markets remain complacent.
Strategists at Bank of America issued a report titled "The AI credit-equity disagreement," warning of a growing disconnect between the bond and stock markets regarding artificial intelligence. The analysis, co-authored by Benjamin Bowler, identifies a valuation gap affecting hyperscalers that have become major borrowers in the investment grade market.
According to the report, the credit market is signaling increased risk, as bond spreads and credit default swaps for these companies have reached their widest levels in at least five years. This suggests that debt investors are becoming more cautious about the financial stability or future obligations of AI leaders.
In contrast, the equity market has remained complacent. The Bank of America team observed that price-to-earnings multiples and implied volatility for these same companies have shown little to no significant movement, indicating that stock investors are not pricing in the risks currently reflected in the credit markets.
